Business debt restructuring is a specialized and confidential service that can help businesses overcome their “toxic debt” issues. This service aims to create an alternative repayment schedule for existing notes and debt obligations by negotiating with lenders. Professional attorney-led teams specializing in debt restructuring deliver these services, engaging with lenders to negotiate new arrangements that are more feasible for businesses.
How Business Debt Restructuring Works
At its simplest, debt restructuring involves modifying outgoing cash flows used to service debt. With debt restructuring, the borrower still repays the full amount owed, but the repayment timeframe (the term) is extended. This extension of the loan term results in a reduction of payments by an average of 40% to 60%, making the payment plan more viable for the borrower. Since the payback is in full, the transaction and terms are not reported to credit bureaus, customers (in the case of factoring), or employees.
Who Can Benefit from Debt Restructuring Services?
Business owners who are struggling with over-leveraged debt and unable to make their daily or weekly loan payments can benefit from debt restructuring. This includes merchants and borrowers with high-cost debt, such as MCAs and factored products, who often find themselves spiraling downwards due to the practice of “stacking” them in an attempt to get to the other side. Debt restructuring seeks to mitigate the financial collapse of a business under a mountain of debt.
Debt Restructuring vs Debt Settlement
It’s important to note that debt restructuring, and debt settlement are different. Debt settlement attempts to settle a debt for less than the amount owed. This approach means the borrower ultimately pays a lower amount, and the lender must accept taking a loss. However, debts settled for less than the amount owed will negatively impact the borrower’s credit score, as the lender will report the settlement to the credit bureaus. This makes it difficult and expensive for the borrower to obtain future financing. Additionally, debt settlement can have tax consequences, and the borrower may receive a form 1099 for debt forgiveness.
Should I Attempt this Myself?
Debt restructuring is a complex process that requires expertise in the intricate aspects of debt restructuring and requires negotiation with lenders. Attempting to do this without experience is not recommended. A professional attorney-led team specializing in debt restructuring can objectively analyze the applicant’s existing debt levels, cash flow, and loan agreements before assessing the short-term cash flow situation for the business. Only after this analysis has been done, can a realistic and viable restructuring plan be designed and presented to the borrower and eventually offered to creditors.
The Benefits of Business Debt Restructuring
Debt restructuring has several benefits for businesses, including:
• Reduced Payments: Debt restructuring will lower payments by an average of 40% to 60%, providing the business with increased cash to invest in growth and profitability.
• Improved Credit Score: Debt restructuring can improve the borrower’s credit score through the regular payments on the restructured debt. This has the added benefit of making it easier to obtain future financing.
• Avoidance of Bankruptcy: In many cases the only viable alternative when large amounts of toxic debt are stifling a business, is bankruptcy. Debt restructuring can help avoid bankruptcy and all the associated costs and negative consequences.
• Customized Plans: Debt restructuring plans are customized for each unique set of circumstances, providing business owners with a viable solution to overcome their debt issues.
Summary
Business Debt restructuring is a solution that can help business owners regain financial stability in the face of often crippling, toxic, high interest debt. It’s important to seek the assistance of a professional (ideally attorney-led teams) who specialize in debt restructuring services. They can negotiate new arrangements that are feasible for the lender, and your business. With the right approach and properly executed plan, debt restructuring can be a powerful and effective tool.
Martin Cobb is the founder and Chief Lending Officer with Churchill Commercial Funding.
If your business is drowning in high-interest, toxic debt, and you would like know more about our business debt restructuring program, please reach out to us at 734-368-1339 or complete this short FORM, and we will be in touch.
